Dr Karl Mallon

1 October 2013 — Australian company Climate Risk has developed a climate change adaptation software designed to revalue property and infrastructure assets based on climate change risk exposure.

Designed by scientists, engineers and financial risk specialists, the “Resilience Engine” allows the impacts of climate change to be priced for specific assets, as well as allowing the evaluation of adaptation benefits.

Climate Risk says the technology has taken three years and US$2 million to develop, and works by analysing hundreds of infrastructure and building assets simultaneously, cross referencing them with extreme weather maps and climate change data to quantify the risks from climate hazards like extreme weather and sea level rise.

The system then automatically forecasts the annual costs of the impacts, insurance premiums and the future change in asset value.

The Fifth Estate recently wrote about the Australian Resilience Taskforce, and their work with Edge Environment creating a Building Resilience Rating Tool, which rates the resilience of homes, and the materials they comprise, to common extreme weather hazards.

See our article Insurance industry turns to resilience

Dr Karl Mallon, director of science and systems at Climate Risk, told The Fifth Estate his company was involved with the first two prototypes of the Building Resilience Rating Tool, but that the Resilience Engine was built with more of a “portfolio approach” in mind.

The utilities sector was of particular interest because “the system is particularly well suited for owners of a large number of assets, and utilities typically have billions of dollars of assets”, he said.

The company is also looking to target other holders of multiple assets, including property portfolio owners and superannuation funds.

A critical element, Dr Mallon said, was the ability to do “location specific engineering grade analysis of assets, so drilling down to the material science about different asset components”.

The tool’s scale can go “down to a section of pipe”, so instead of having a one-size-fits-all approach, you can be very targeted and change materials based on climate risk in a particular area, he said, creating more “bang for buck”.

“It’s much, much cheaper to factor in adaptation as part of an asset management strategy than to do a fix and fail approach,” he said.

“Small changes now may have a relatively modest cost, but can have a significant impact down the track. It heads off a lot of risk.”

The Resilience Engine, Dr Mallon said, addressed a fundamental gap between climate science and asset planning.

“To cross the divide we turn maps and probability distributions into dollars, cents and cost projections,” he said.

“It might seem a small gap, but its takes serious maths, maps and computing power to bridge that divide. What currently takes months of expert consulting time we have captured in sophisticated software that runs 10 million risk calculations per minute.

“This is getting down to very specific things,” Dr Mallon told The Fifth Estate, including calculating the probability of assets failing per year, and the cost of insured and uninsured losses.

The company now has more than 300,000 assets on its servers being trialled by asset managers. One of Australia’s largest utilities is currently in roll-out phase with a utility version of the software.

“The technology could be a market game changer,” Dr Mallon said. “Asset owners can now test the resilience of their own portfolio, adapt high risk assets or get rid of them before the rest of the market has realised the liability. They can also identify the weaknesses in someone else’s portfolio.

“The market has not really factored changing extreme weather and climate science into asset valuation but once the market has access to robust information we expect pricing to follow.”

At the moment Climate Risk is doing pilot implementation with a series of utilities.

Dr Mallon said they had water covered, and were looking at the power, roads and local government sectors.

They are also seeking expressions of interest from companies with a portfolio of assets that may like to utilise the software.

Go to www.climaterisk.net for more information.